REITs Executive Compensation Guide

Key Components Of Executive Compensation For REITs

Base Salary Base salary provides a predictable stream of fixed cash compensation designed to recognize an executive’s role, scope of responsibility and experience. Base salaries for executives are generally not adjusted regularly according to performance, but performance may be taken into account for future adjustments. Incentive Compensation Cash Cash incentive compensation provides variable compensation that is designed to reward executives, generally for annual performance relating to key operational and financial measures. It is more common for short-term or annual incentive compensation for REIT executives to be settled in cash, but some companies may provide for awards to be settled in equity (either at the REIT’s or the executive’s election). Cash incentive compensation may be determined based on a formula, but, at most companies, at least some portion of cash incentive compensation takes into account subjective performance assessments, such as individual performance and the achievement of non-financial objectives.

Equity Equity incentive compensation provides variable compensation that is designed to promote retention, drive long-term value creation and align the interests of management with those of stockholders by subjecting executives to the same market fluctuations as stockholders. Due to the retentive properties of long-term compensation, it is generally awarded as equity. These awards are most commonly granted as “full-value” equity awards, which can be in the form of restricted stock, restricted stock units (“ RSUs ”) or units of limited partnership interest designated as LTIP units. Typically, the vesting terms associated with full-value equity awards may include the following (with most REITs using a combination of award types): Time-vested shares vest on a future date contingent upon remaining an employee through a specified date ■

Performance shares are earned on a future date contingent upon the satisfaction of pre-determined performance goals

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PRACTICE POINT: When settling incentive compensation in equity, special attention must be paid to deferral election rules under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”), if the arrangement will result in the deferral of income recognition. For more information see “Section 409A.”

7 | 2023 Guide to REIT Executive Compensation